The evolution of the foreclosure-gate is starting to feel more and more Deepwater-Horizon like every day.
What really makes it similar — and this is a point we made yesterday while chatting with Tadas Viskanta on Abnormal Returns TV (watch here!) — is the seemingly unquantifiable risk to the banks.
It could be an enormous problem. It could be modest. There are so many moving parts to this that any guesses are bound to be just that: guesses.
Deepwater Horizon was similar. At one point in the middle of the summer, there was serious talk about BP going bankrupt and the entire Gulf of Mexico being permanently sullied. It was really, really difficult for anyone to say. And in the end, the fact that the pollution was not at catastrophic levels seemed to surprise almost everyone.
Beyond that, the arc of the story is similar. As Yves Smith notes, the story is now starting to actually hurt the share prices of banks, similar to how BP shares were fairly unscathed in the early days of the crisis, but then really collapsed as people realised how big of a deal it was.
So the point is not that this will be catastrophic. The point is that with so many questions about how and when this will be resolved, the crisis remains unknowably bad.
And just to get a sense of the range of predictions, you have everything from Josh Rosner talking about another “Lehmand Weekend,” and Jeff Gundlach predicting an only modest impact, and then analysts at banks talking about a $130-$150 billion crisis.